The financial services industry is no stranger to frequent regulatory upheaval and scrutiny, however the past year has been particularly demanding on market participants, including but not limited to product providers, platforms, distributors, financial advisers and those providing data and technology infrastructure to meet the symphony of deadlines that defined 2022.
A common theme across major global markets were calls for further clarity on sustainability disclosure requirements. The European Commission published a number of Q&As in response to questions raised by the industry and even the European Supervisory Authorities (ESAs), and the United Kingdom issued its consultation paper on Sustainability Disclosure Requirements (SDR) and investment labels, indicating a strong position for greater transparency around sustainability.
The deadline for the EU’s transition from UCITS KIIDs to PRIIPs KIDs and the new rules for existing PRIIPs coincided with the first submissions of pre-contractual reports required by the Sustainable Finance Disclosure Regulation (SFDR) Level II Revised Technical Standards (RTS) on 1 January 2023. PRIIPs KIDs have been contentious since their inception in 2018 and the revised RTS put significant pressure on product providers to meet the deadline at the turn of the year. Anticipation of amendments to the SFDR RTS is expected to cause further discomfort, if approved early this year, as changes to the templates will take effect just three days after publication of the update in the Official Journal of the EU.
Europe is also closely looking at the United Kingdom’s new Consumer Duty, which aims to set higher and clearer standards of consumer protection. The Duty, according to the FCA, will lead to a major shift in financial services, impacting every link in the product provider/platform/adviser chain, from provider governance to adviser due diligence. Overall, the Consumer Duty is about the culture throughout firms, from product design to customer support and pretty much everything in between.
Meanwhile, Hong Kong, Singapore and Australia have benefited from standards set by Europe and the United Kingdom, to closely align and progress the formation of their sustainability frameworks and accompanying disclosure requirements. Progress may be slower but it is happening, with Hong Kong’s enhanced disclosures for large fund managers coming into effect in November last year, and Singapore’s disclosure and reporting guidelines for retail ESG funds coming into effect on 1 January 2023. The Australian fund industry is leading the sustainability charge there, with the Treasury a step (or two) behind, publishing its consultation paper on ‘Climate-related financial disclosures’ just in December 2022.
It seems clarity, transparency and sustainability will reign supreme as the dominating themes in fund regulation for the year ahead. Open discourse within the wider industry will be required to steer regulatory developments that make sense and deliver on Consumer Duty.